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The Moscow Times, Russia
Sept 21 2005
>From Soviet Trade Bank to Universal Lender
By Greg Walters
Staff Writer
Michael Eckels / MT
Vneshtorgbank is giving the competition a run for its money as it
expands into retail and corporate services.
Russia's No. 2 bank, Vneshtorgbank, is emerging from its historic
role as the government's foreign-trade facilitator and is pushing
hard to mold itself into a diversified financial institution.
Vneshtorgbank, or VTB -- sometimes billed as the only bank that could
actually give industry leader Sberbank a run for its money -- is
moving into retail and investment banking, expanding corporate
services and buying up smaller banks in the CIS and Western Europe.
The bank even has plans to list shares on a foreign exchange as early
as 2006, although some analysts say a foreign IPO may still be
several years away.
Given its aggressive plans, state-owned VTB appears set to become an
even more important player in the banking sector and economy as a
whole.
"It's trying to transform itself from a Soviet trade bank into a
universal bank," said Andrew Keeley, banking analyst at Renaissance
Capital. "It clearly has the support of the administration in what
it's doing. It's not to be taken lightly."
VTB itself says the changes are part of its strategy to take on
global competition. "Only the big and the strong can compete with
foreign banks," said Vasily Titov, VTB senior vice president and
board member, in an interview. "That's why we're doing all this."
Despite this apparent dynamism, VTB came under blistering criticism
from former Central Bank Chairman Viktor Gerashchenko earlier this
month, who said the bank was in "financial deadlock" and compared it
to a sinking ship. "It seems our Titanic has holes enough to go
under, yet the orchestra is still playing a happy waltz,"
Gerashchenko said, Vedomosti reported.
Gerashchenko blasted VTB's plans to purchase overseas banks owned by
the Central Bank -- Moscow Narodny Bank of London, Eurobank of Paris
and Ost-West Handelsbank of Frankfurt -- saying they would not help
keep the ship afloat. "A handful of dinghies won't do any good. They
will just get drawn into the whirlpool," he said.
Although VTB reported profit last year of $263 million, Gerashchenko
said that his analysis showed the bank's core operations actually
lost money.
Titov declined to respond to Gerashchenko's criticism, saying the
bank would not comment on the personal opinions of a private citizen.
Yekaterina Trofimova, banking analyst at Standard and Poor's, called
Gerashchenko's judgment too harsh.
"The bank is in an expansion stage right now," she said. "The
financial results are, as expected, moderate, which is absolutely
normal for the bank at this stage of development."
Trofimova said the current results should be weighed against
investments the bank was making in its network and products, as well
as in acquisitions.
The new foreign acquisitions appear to make long-term sense,
Trofimova said. "These links with Western Europe are very important
for VTB's growing international business and export-import flows,"
she said.
Other analysts agreed that Gerashchenko probably went too far in
criticizing VTB in light of the government's vested interest in
seeing its own bank succeed.
VTB may be planning to use the government's proposed 37.5 billion
ruble ($1.25 billion) capital injection -- ostensibly for purchasing
the Central Bank's overseas assets -- as a leverage point for
improving its domestic position, said Natalya Orlova, an analyst at
Alfa Bank. "Acquiring overseas banks is a way to secure an increase
of capital from the federal budget," she said.
VTB's strategy appeared to be geared toward using its position as a
state champion to move aggressively into new sectors such as retail
banking, Orlova said. "Increasing its capital will have a deeper
effect on VTB's domestic position than ... owning overseas banks,"
she said.
The country's entire banking sector wobbled briefly in the summer of
2004, after the closure of two second tier banks spooked depositors.
VTB used the opportunity to gobble up Guta Bank, the mini-crisis'
main casualty, for a nominal 1 million rubles ($35,000).
Guta, now rebranded Vneshtorgbank 24, has been turned into VTB's
retail arm, offering many services online.
Guta and the Central Bank's biggest remaining European-based assets
are only part of VTB's acquisition binge. The bank has been steadily
scooping up smaller Central Bank assets in Europe over the years, and
it recently shelled out for 25 percent of St. Petersburg-based
Promstroibank with an option to increase ownership to a controlling
stake.
In a little over a year, VTB has also made waves in the CIS, buying a
majority stake in Armenia's ArmSavingsBank, and 50 percent plus one
share in United Georgian Bank. In March of this year, VTB opened a
subsidiary in Ukraine.
These CIS banks are "not very profitable, but they're doing OK,"
Trofimova said.
They also could come in handy for servicing Russian companies
expanding abroad, analysts said.
After months of reports that the European Bank for Reconstruction and
Development and Deutsche Bank were both negotiating to buy a minority
stake, VTB now says it hopes to list shares on a foreign stock market
as early as next year. "We want to do an IPO, probably in London,"
Titov said. "But only the owner, the government, can decide that. We
have made this proposal, but they haven't said anything." Titov said
the listing could be anywhere from 6 percent to 20 percent of VTB.
Renaissance Capital's Keeley said a VTB listing would be a
significant new target for portfolio investors.
"Investors are very eager to get exposure to Russian banks, but now
they basically have very little choice" about where to invest, Keeley
said.
Vneshtorgbank is still at best a head shorter than its bigger
adversary.
Sberbank's deposits at the end of 2004, including retail and
corporate deposits, represented 36.3 percent of Russia's total
deposits, according to an estimate by Standard and Poor's. VTB came
in a distant second with 4.2 percent.
Sberbank also handled an impressive 29.5 percent of Russian loans,
compared with 7.5 percent at VTB.
Yet VTB is at least a minor giant in a country where most banks have
less than 2 percent in both categories.
In deposits, only Gazprombank (3.5 percent), Alfa Bank (3.2 percent),
Bank of Moscow (3 percent) and Rosbank (2 percent) broke the 2
percent barrier. In loans, only Gazprombank (3.8 percent), Alfa Bank
(3.1 percent) and Bank of Moscow (2.3 percent) did.
Many experts question whether VTB will ever really compete with
Sberbank, as they are both state-owned. As VTB puts down roots in
areas like retail, smaller banks could be left with little option but
to run between the legs of the two state-owned giants.
Russia's Top 5 Banks by Assets
Bank Total Assets Share of Total
(millions of rubles)* Banking Assets
1. Sberbank 2,219,094 28.87%
2. Vneshtorgbank 504,769 6.57%
3. Gazprombank 379,657 4.94%
4. Bank of Moscow 210,136 2.73%
(Bank Moskvy)
5. Alfa Bank 208,017 2.71%
*Data as of July 1, 2005
Source: Interfax Center for Economic Analysis
Sept 21 2005
>From Soviet Trade Bank to Universal Lender
By Greg Walters
Staff Writer
Michael Eckels / MT
Vneshtorgbank is giving the competition a run for its money as it
expands into retail and corporate services.
Russia's No. 2 bank, Vneshtorgbank, is emerging from its historic
role as the government's foreign-trade facilitator and is pushing
hard to mold itself into a diversified financial institution.
Vneshtorgbank, or VTB -- sometimes billed as the only bank that could
actually give industry leader Sberbank a run for its money -- is
moving into retail and investment banking, expanding corporate
services and buying up smaller banks in the CIS and Western Europe.
The bank even has plans to list shares on a foreign exchange as early
as 2006, although some analysts say a foreign IPO may still be
several years away.
Given its aggressive plans, state-owned VTB appears set to become an
even more important player in the banking sector and economy as a
whole.
"It's trying to transform itself from a Soviet trade bank into a
universal bank," said Andrew Keeley, banking analyst at Renaissance
Capital. "It clearly has the support of the administration in what
it's doing. It's not to be taken lightly."
VTB itself says the changes are part of its strategy to take on
global competition. "Only the big and the strong can compete with
foreign banks," said Vasily Titov, VTB senior vice president and
board member, in an interview. "That's why we're doing all this."
Despite this apparent dynamism, VTB came under blistering criticism
from former Central Bank Chairman Viktor Gerashchenko earlier this
month, who said the bank was in "financial deadlock" and compared it
to a sinking ship. "It seems our Titanic has holes enough to go
under, yet the orchestra is still playing a happy waltz,"
Gerashchenko said, Vedomosti reported.
Gerashchenko blasted VTB's plans to purchase overseas banks owned by
the Central Bank -- Moscow Narodny Bank of London, Eurobank of Paris
and Ost-West Handelsbank of Frankfurt -- saying they would not help
keep the ship afloat. "A handful of dinghies won't do any good. They
will just get drawn into the whirlpool," he said.
Although VTB reported profit last year of $263 million, Gerashchenko
said that his analysis showed the bank's core operations actually
lost money.
Titov declined to respond to Gerashchenko's criticism, saying the
bank would not comment on the personal opinions of a private citizen.
Yekaterina Trofimova, banking analyst at Standard and Poor's, called
Gerashchenko's judgment too harsh.
"The bank is in an expansion stage right now," she said. "The
financial results are, as expected, moderate, which is absolutely
normal for the bank at this stage of development."
Trofimova said the current results should be weighed against
investments the bank was making in its network and products, as well
as in acquisitions.
The new foreign acquisitions appear to make long-term sense,
Trofimova said. "These links with Western Europe are very important
for VTB's growing international business and export-import flows,"
she said.
Other analysts agreed that Gerashchenko probably went too far in
criticizing VTB in light of the government's vested interest in
seeing its own bank succeed.
VTB may be planning to use the government's proposed 37.5 billion
ruble ($1.25 billion) capital injection -- ostensibly for purchasing
the Central Bank's overseas assets -- as a leverage point for
improving its domestic position, said Natalya Orlova, an analyst at
Alfa Bank. "Acquiring overseas banks is a way to secure an increase
of capital from the federal budget," she said.
VTB's strategy appeared to be geared toward using its position as a
state champion to move aggressively into new sectors such as retail
banking, Orlova said. "Increasing its capital will have a deeper
effect on VTB's domestic position than ... owning overseas banks,"
she said.
The country's entire banking sector wobbled briefly in the summer of
2004, after the closure of two second tier banks spooked depositors.
VTB used the opportunity to gobble up Guta Bank, the mini-crisis'
main casualty, for a nominal 1 million rubles ($35,000).
Guta, now rebranded Vneshtorgbank 24, has been turned into VTB's
retail arm, offering many services online.
Guta and the Central Bank's biggest remaining European-based assets
are only part of VTB's acquisition binge. The bank has been steadily
scooping up smaller Central Bank assets in Europe over the years, and
it recently shelled out for 25 percent of St. Petersburg-based
Promstroibank with an option to increase ownership to a controlling
stake.
In a little over a year, VTB has also made waves in the CIS, buying a
majority stake in Armenia's ArmSavingsBank, and 50 percent plus one
share in United Georgian Bank. In March of this year, VTB opened a
subsidiary in Ukraine.
These CIS banks are "not very profitable, but they're doing OK,"
Trofimova said.
They also could come in handy for servicing Russian companies
expanding abroad, analysts said.
After months of reports that the European Bank for Reconstruction and
Development and Deutsche Bank were both negotiating to buy a minority
stake, VTB now says it hopes to list shares on a foreign stock market
as early as next year. "We want to do an IPO, probably in London,"
Titov said. "But only the owner, the government, can decide that. We
have made this proposal, but they haven't said anything." Titov said
the listing could be anywhere from 6 percent to 20 percent of VTB.
Renaissance Capital's Keeley said a VTB listing would be a
significant new target for portfolio investors.
"Investors are very eager to get exposure to Russian banks, but now
they basically have very little choice" about where to invest, Keeley
said.
Vneshtorgbank is still at best a head shorter than its bigger
adversary.
Sberbank's deposits at the end of 2004, including retail and
corporate deposits, represented 36.3 percent of Russia's total
deposits, according to an estimate by Standard and Poor's. VTB came
in a distant second with 4.2 percent.
Sberbank also handled an impressive 29.5 percent of Russian loans,
compared with 7.5 percent at VTB.
Yet VTB is at least a minor giant in a country where most banks have
less than 2 percent in both categories.
In deposits, only Gazprombank (3.5 percent), Alfa Bank (3.2 percent),
Bank of Moscow (3 percent) and Rosbank (2 percent) broke the 2
percent barrier. In loans, only Gazprombank (3.8 percent), Alfa Bank
(3.1 percent) and Bank of Moscow (2.3 percent) did.
Many experts question whether VTB will ever really compete with
Sberbank, as they are both state-owned. As VTB puts down roots in
areas like retail, smaller banks could be left with little option but
to run between the legs of the two state-owned giants.
Russia's Top 5 Banks by Assets
Bank Total Assets Share of Total
(millions of rubles)* Banking Assets
1. Sberbank 2,219,094 28.87%
2. Vneshtorgbank 504,769 6.57%
3. Gazprombank 379,657 4.94%
4. Bank of Moscow 210,136 2.73%
(Bank Moskvy)
5. Alfa Bank 208,017 2.71%
*Data as of July 1, 2005
Source: Interfax Center for Economic Analysis